Brian Zinchuk is editor and owner of Pipeline Online
Cenovus Lloydminster Upgrader. Photo by Brian Zinchuk
Cenovus Inc. was one of several oil companies that provided submissions to the Saskatchewan Economic Impact Assessment Tribunal, which was tasked with looking into the proposed federal Clean Electricity Regulations. This is Cenovus’ overview submission, verbatim. A much more detailed report will also be published on Pipeline Online:
Cenovus Energy appreciates the opportunity to comment on the expected impact of the proposed Clean Electricity Regulations (CER) on our Saskatchewan operations. Cenovus is one of Canada’s largest oil and natural gas companies. We are an integrated energy company with upstream operations across Western Canada, crude oil production offshore Newfoundland and Labrador, and natural gas and liquids production offshore China and Indonesia. Our downstream business includes upgrading and refining operations in Canada and the United States, as well as ethanol production in Saskatchewan and Manitoba. We are focused on managing our assets in a safe, innovative, and cost-efficient manner, integrating sustainability considerations into our business plans. Our commitment to environmental, social, and governance performance is key to how we work and approach sustainability at Cenovus.
Cenovus recognizes the need to address emissions associated with electricity generation to move the Canadian economy toward net-zero emissions by 2050. However, we have significant concerns related to the draft regulations’ ability to manage critical issues affecting Canadian power markets. As currently drafted, we believe that the Clean Electricity Regulations do not adhere to Government’s stated core principles; maximizing GHG reductions from the grid; maintaining electricity affordability for Canadians and businesses; and maintaining grid reliability to support a strong economy. Instead, the outcome will be lower emissions, but at the significant expense of both affordability and reliability for a sizable portion of the economy and Canadian residents. The impacts will be particularly acute for Alberta and Saskatchewan electricity users.
Cenovus has meaningful power market exposure in Western Canada, and many of our proposed decarbonization projects will serve to increase our reliance on electricity imported from provincial grids. Rising power prices will result in a corresponding increase in our operating costs. In Saskatchewan specifically, we are concerned that the tight timelines required to adhere to the CER will risk power shortages and grid instability.
In response to the publication of the draft regulations, we provided Environment and Climate Change Canada (ECCC) with a series of recommendations that we feel will ameliorate some of the issues that have arisen because of the draft regulations. We have attached a copy of our comments and recommendations as an appendix to this submission for your reference.
Overview of Potential Impacts to Cenovus’s Saskatchewan Operations
As a major industrial power user, Cenovus expects its Saskatchewan assets to be adversely affected by the CER as currently drafted. While ECCC recently released a discussion document contemplating significant revisions to the draft CER, we are unable to evaluate the likely impact until further specifics are made public. Even so, we do not currently have any reason to revise our expectations of markedly higher electricity costs, grid instability, and potential power shortages when the regulations come into force. One of our most pointed concerns relates to the significant operational safety risks to our employees and contractors that is introduced by power interruptions caused by grid instability.
Cenovus’s major operations in Saskatchewan include:
- Our Lloydminster Thermal operations, which include 12 producing assets using steam-assisted gravity drainage technology. Together they produced over 100 Mbbl/day in 2023.
- Cold heavy oil production of roughly 10 Mbbl/day, with 500 bbl/day recovered via CO2 enhanced oil recovery.
- The Lloydminster Upgrader, which processes up to 81.5 Mbbl/day of heavy oil from our Saskatchewan-based thermal projects. The synthetic crude produced at this upgrader is used in the production of gasoline and diesel fuels in refineries in Canada and the U.S.
- Our Lloydminster Ethanol Plant, which relies on locally sourced grain to manufacture low-carbon ethanol.
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Our total power costs in Saskatchewan are significant; we spent $195 million on electricity in 2023. Should the Government of Saskatchewan’s estimate of a 107% increase in utility rates by 2035 come to fruition, we would expect to see a corresponding spike in our operational costs, resulting in an annual spend of roughly $400 million. Our analysis shows that, depending on the commodity price assumptions used, production in Saskatchewan will be negatively impacted as the economic lifespan of some of our thermal projects is reduced by high operational costs (under a 107% power cost escalation scenario).
Additionally, we are concerned about the potential impact of the CER (as drafted) on the Canadian Power owned (but Cenovus operated) Meridian Cogeneration Plant located at the Lloydminster Upgrader. Under the CER, all gas cogeneration and combined-cycle gas turbine (CCGT) facilities are required to shut down after 20 years of operation or in 2035, whichever is later, if they cannot meet the new emission intensity standard of 30 tonnes of CO2 emissions/GWh by such date. As a result, Meridian would be required to cease operations in 2035, unless abatement technology limiting emissions to less than 30 T of CO2 is in place in 2035. This level of abatement technology performance is not currently proven for typical CCGT or Cogen assets.
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The Lloydminster Upgrader currently sources all its thermal energy (steam) needs from Meridian and pre-mature shut-down of the cogeneration plant would cause major operational disruption and cost increases to the Upgrader above and beyond what we are already facing in terms of Saskatchewan OBPS compliance and additional layered federal costs. Additionally, as the upgrader cannot operate without steam, less efficient steam would have to be procured, resulting in increased emissions intensity, counter to the intent of CER or any other carbon mitigation policy.
The resulting cost escalation of electricity will occur in tandem with rising carbon pricing liabilities, as well as increasingly stringent methane regulations. The Federal Government is also proposing to add further costs to our industry via a cap-and-trade system exclusively targeting oil and gas producers. Taken together, these punitive policies will substantially erode the economics of our primary operations, as well as our decarbonization initiatives.
We appreciate the Government of Saskatchewan’s work to address the significant concerns the CER has raised and will continue to support the province’s efforts to protect their economy.
Should you require further information or details related to this submission, please don’t hesitate to reach out to myself or my team; specifically, Travis Davies, who is responsible for the Saskatchewan government affairs portfolio for Cenovus.
Sincerely,
Devin Iversen
Vice President, Government Affairs
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